5

1. Which of the following best describes an interest rate cap?

   		a cash-and-carry hedge
   		a call option spread
   		a series of interest rate calls
   		a series of forward contracts

1 points

Question 6

1. The advantage of a collar over a cap is

   		it lowers the out-of-pocket cost
   		it eliminates the risk
   		it offers the possibility of greater returns
   		it has lower transaction costs

1 points

Question 7

1. A long position in an interest rate call would be appropriate for which of the following situations:

   		a borrower expects rising interest rates
   		a derivatives dealer is exposed to the risk of falling interest rates
   		a bond trader expects falling interest rates
   		a lender expects rising interest rates

1 points

Question 8

1. The writer of a agreement makes settlement payments when LIBOR is less than the striking rate of the agreement.

   		Floor
   		Cap
   		Collar
   		Swap